What is a market maker?
A market maker is an individual or organisation that takes on the risk of holding a particular security in order to allow investors to trade that security. They quote both a buy and a sell price of this product in the hope of getting investors to trade it.
Key takeaways
Market makers are individuals or organizations that take on the risk of holding particular securities and quote both buy and sell prices to facilitate investor trading of those securities.
The primary function of market makers is to keep markets liquid by allowing clients to buy from and sell directly to them, maintaining continuous trading activity.
Market makers are typically large broking firms due to substantial capital requirements, and are especially prevalent in currency exchange where they operate as banks and forex trading firms.
Overseeing organizations such as the Federal Reserve investigate market makers' practices, with some trading firms having been accused of providing customers with poor deals.
Where have you heard about market makers?
You may have heard about market makers in the context of market trading. Occasionally, overseeing organisations such as the Federal Reserve of the US carry out investigations into the way market traders make money. For example, two trading firms have been accused of giving their customers a poor deal .
What you need to know about market makers...
Market makers carry out the function of keeping the market liquid. Although they can be individuals, the size of the investments needed to allow traders to buy and sell the security means that they are usually large broking firms. Market makers are especially prevalent in currency exchange, where the market makers tend to be banks and foreign exchange trading firms. Clients buy from and sell to the market maker.